1 Stock Down 63% to Buy Right Now: Alibaba's Undervalued Opportunity

Alibaba(BABA -5.94%) has been a high-growth stock over the past decade, but its recent 63% decline from its peak presents an attractive entry point for long-term investors. Despite facing regulatory challenges, macroeconomic headwinds, and increased competition, Alibaba is poised to bounce back as these hurdles dissipate. This article explores the reasons why Alibaba is an undervalued opportunity and how its fundamentals position it for a strong recovery.
Alibaba's recent stock price decline is primarily driven by regulatory challenges, macroeconomic headwinds, and increased competition. In 2021, the company faced a record fine and restrictions on its e-commerce business due to antitrust regulations. Additionally, China's macro environment deteriorated due to the pandemic and government lockdowns, further throttling the growth of its e-commerce and cloud businesses. However, Alibaba has now lapped these regulatory setbacks, and China's recent stimulus measures indicate that its core businesses should warm up again.

Despite these challenges, Alibaba's growth is accelerating and stabilizing. In fiscal 2024, its revenue and adjusted net income growth accelerated again, driven by the faster growth of its overseas e-commerce marketplaces and the evolution of Cainiao logistics into a new growth engine. From fiscal 2024 to 2027, analysts expect Alibaba's revenue and net income to grow at a CAGR of 8% and 21%, respectively. This strong growth potential is supported by Alibaba's dominant position in China's e-commerce and cloud markets.

Alibaba is also generating significant cash, returning a lot of it to investors through share buybacks and dividends. The company bought back $12.5 billion in shares in fiscal 2024 and approved its first annual cash dividend of $1 per ADS earlier this year. Alibaba's forward yield of 1.8% might not attract serious income investors yet, but its low payout ratio of 51% should give it plenty of room for future dividend hikes.

Alibaba's stock looks dirt cheap at 15 times next year's earnings. This undervaluation presents an opportunity for investors to capitalize on the company's strong fundamentals and growth potential. As China's economy recovers and stimulus measures kick-start consumer spending, Alibaba's e-commerce and cloud businesses should eventually expand and boost its valuations.
In conclusion, Alibaba's recent stock price decline has created an undervalued opportunity for long-term investors. The company's strong fundamentals, growth potential, and cash flow generation position it well to overcome regulatory challenges and macroeconomic headwinds. As China's economy recovers and stimulus measures take effect, Alibaba is poised to bounce back and deliver significant returns for investors.